Binary Options Terminology: The Cornerstone of Trading

Trading with binary options, and trading, in general, belong to a very narrow, specialized field. Therefore, users inevitably come into contact with specialized professional approaches, which are referenced to through distinct terminology. The meaning of them wouldn’t appear obvious to laymen, moreover, some of them mean something completely different in everyday life. Therefore, every beginner must acquaint themselves with the meaning behind the professional slang actively used by traders. Traders should begin their journey with this specifically, along their path of this new, desirable, and very profitable field. Because, even in the first educational lessons, available on the site of most brokers, actively use professional terminology from the very beginning.

The dictionary of terminology for binary options is reasonably concise, and the majority of terms are borrowed from Forex. The basic list includes a few dozen terms, which can be memorized quickly without much effort. An understanding of professional slang allows beginners to get the essence of what is happening, the principles of trading strategies and trading in general. It also enables mutual understanding with other traders, allowing you to converse on the same level and exchange experience. In general, it is the basic cornerstone to trading. This article is dedicated to giving an overview of basic terms for trading with binary options. To start, we’ll define the main key terms, so the article is divided into chapters.

Defining Terms

Binary option – a type of contract on the stock market. It differs from other classic types of trades on the exchange market, such as Forex, due to the binary and so-called fixed-term delivery. In practice, the understanding of options was transferred from the physical exchange, however, we will consider it exclusively in the context of modern internet trading.

An options contract has a fixed percentage of profit and loss. If the forecast is realized, then the trader makes a profit, if it is wrong, then the capital is lost. The profit margin does not depend on the price interval on the chart from when the trade was opened to the expiration. Here lies the essence of this type of binary contract, which is where they got their name.

The Various Types of Classic Options:

CALL — a type of contract on the stock market, based on rate growth. It’s referred to different names: “High”, “higher”, “buy”, “increase”, and so on. In order to start accruing profit in your account, the asset exchange rate needs to increase by at least 1 point.

PUT — an analogical contract, based on a decline. It also goes by many names: “Low”, “down”, “sell”, and so on. The principles of it are the same as with PUT. To start accruing profit in your account, the asset exchange rate needs to decrease by at least 1 point. If the rate remains the same, then 100% of the total investment is returned.

Turbo-options. This type of contract is usually in a separate category of its own. In essence, they are typical classic options, but with a shortened active period, from 1 to 5 minutes. Several brokers set the minimum duration for a trade at 30 seconds.

Other than the standard “buy/sell” contracts, some brokers offer traders other types of options. They are different based on their system for earning a profit and, usually, have a higher percentage of income. The profit with a classic approach to trading ranges from 70% to 95%, but with these specialized contracts, the indicator can increase from 500-1,000%, and even more. However, it is dependant on the contract’s terms and conditions, as set by the broker. So, let’s consider what sets them apart from classic options.

“One Touch” — is a contract, where the condition for closing the trade in the positive is that the price touches a specific level. One touch is enough, and it does not matter when it happened. If the price reaches the set mark even once, then the trade turns a profit every time. The border lines are usually set by the broker, but on several platforms, you can control it yourself. The profit margin depends on the distance from the point of the current rate to that of the agreed upon level, it ranges from 100% to 500% or higher.

“Border” — is a trading option, where the trade is placed on the understanding that the price will stay within a defined corridor, indicated on the chart, or, on the contrary, it will definitely break through it. The profit is also increased and dependant on the intensity of the price fluctuation.

“Stairs” — an option with multiple levels, the profit increases in steps, dependent on which of the “steps” the price is on when the trade expires. It is the most profitable type of contract, which brokers can earn up to a 1,500% return on the investment if it expires on the last step.

There are also other types of trades, such as pairs, FX/CFD, No Touch, and others. However, they are only available from certain brokers, who work on a specific trading platform.

Other Binary Options Trading Terms

Asset — the subject or good, which is available to trade on the platform. Valuing the functionality of a binary options broker ensures that you can trade practically any good. That is clear. Some companies allow you to trade the most exotic assets, like sugar or wheat. If the good is listed on the stock market and it has a rate, then it can be traded with binary options.

Sub-varieties of Assets:

basic — an asset, used to trade at the current time, chosen by the trader;

currency — the national currency of a large country, which is traded in pairs, like against the dollar or another country’s currency;

goods — an asset with the noted price rate of a physical commodity, for example, oil, gas, precious metals or agriculture;

indexes — financial tools, which depict the current situation in concrete industrial sectors of specific countries;

cryptocurrencies — principally a new type of monetary unit, existing only in the virtual world, which isn’t backed by any guarantee.

Trade — one trading operation performed on a broker’s platform, with an acquired option. They are also often referred to as a “rate”, due to a certain similarity with gambling. However, brokers’ BO work is principally different from that of casinos’ and or bookmakers’.

The Definition of Additional Terms Related to Trading:

Expiration — the duration of a trading operation on the market. This indicator defines the moment in time when there will be a fixed result from the trade. If the forecast is accurate, then the percentage of profit from the trade will be sent directly to your account. If the opposite happens, the option will be closed on a loss. The maximum financial risk is limited to the total investment made to the trade, irrespective of how far the price moved in the undesirable direction.

Contract expiration price — the relative price value of a concrete asset at the time the trade expires.

Investment — the total financial capital placed in one options contract.

Profit — the percentage that accrues on the financial balance, when trades are correctly forecasted, with successful expirations.

Strategy — a selection of outlined principles and rules, aimed at achieving a specific trading result. They are previously compiled systems, made up of concise indicators and forecasting and trading market methodology.

Classic Trading Strategies Divided By Type:

Indicators — methods for market analysis, based on mathematical calculations of price formation on the chart. Methods of technical analysis are applied. The computing capabilities of modern technology enable traders to avoid written calculations. All of the technical portions are conducted automatically. However, the interpretation of the resulting indicators is the job of traders themselves.

On the news — a fundamental approach to market analysis, where traders research upcoming economic events in a specific sphere, rather than analyzing the chart. If it is a currency, then its course will be influenced by various news releases related to macroeconomic situations in the country of origin.

It is also applied to asset trading. Fundamental analysis is considered more difficult than technical. However, thanks to the services of “Economic Calendar”, so long as they have basic trading skills, anyone who wishes can try their hand at trading the news.

Price Action — is a strategy based on visual evaluation of what is happening is on the market. The point is that price doesn’t move chaotically, but in a specific manner, following established laws and regulations, developed by traders over several decades of trading on the market. In this type of strategy, specialized analysis tools, as a rule, aren’t applied. In their place, traders detect various cycles of market movement — growth/recoil, levels of support/resistance and so on.

Graphic — a sub-strategy, based on market analysis on a live candle chart. In this one, methods of drawing are actively used, including auto figures in the form of channels, lines, rays, Fibonacci, fans, and forks. For example, the live chart on TradingView provides several hundred different figures for drawing. It makes the process of detecting characteristic patterns and figures that form on the chart over time easier. Their appearance signals the growth of a defined, famous price behavior scenario. Strategies based on candle analysis cycles fall into this very category.

Technical analysis — is a system is based forecasting, through the study of the laws of market behavior, formed through the analysis of historical analogical situations. The methodology is very effective because the fundamental principles of the market remain unchanged over time. With that goal, indicators with various scripts are used, as well as methods of graphic analysis and visual evaluation of price behavior on the chart. This approach is based on the conception, some say legend, that the chart holds absolutely all the vital information, which a trader would need to effectively forecast the market. Furthermore, all the issues are solved through accurate interpretation.

Fundamental analysis — the analysis of concrete companies or countries with the aim of forecasting changes in share capitalization, or the national currency of a country. With that goal, analysts closely study information from a variety of sources, which reflect a range of industries, investments, perspectives and basic indicators, which hint at information in the economic plan. In contrast to the last approach, traders aren’t interested in price behavior on the chart. Fundamental analysis, in theory, produces more significant results. However, the difficulty here is in the limited number of information sources and, more importantly, in the accuracy of the analysis. Of particular value, is the so-called insider information, received from sources inaccessible to the wider public.

Money management (the management of capital) — is a system of rules, which outline how an investor should manage their funds. Investing is associated with a high level of risk, which directly in proportion with the possible percentage of profit. Therefore, the main goal of money management is to minimize risk. Following these rules allows a trader to retain their funds even in undesirable situations, such as, when a trading strategy used leads to a loss. Many beginners ignore this moment. However, it is their biggest mistake. In terms of importance, money management comes before any concrete trading strategy.

Conclusion

In this article, we have gone through the list of the most important terms, widely used in trading with binary options. However, it is worth noting that a concise list of terms would include several hundred words. If we tried to go through them all, the article would be so long that it would be confusing to any beginner, having yet to master any of the described. Moreover, an understanding of basic terms enables you to orientate yourself in this field, where it is vital to gain as quick of an understanding as possible.

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